The announcement will free up cash to pay off debt, buy back stock and possibly lead to a higher dividend -- which are all good for investors. In yet another sign of the likelihood of steep rate increases next year for the state's electric customers, Dominion lost $165 million in Virginia in the third quarter.

In general, Dominion made $654 million in the third quarter, which included an $11 million loss because of the remnants of Ernesto, which pounded Hampton Roads in early September. Dominion's stock increased $2.62 on Wednesday to close at $83.61, its highest mark in a year.

The announcement that the company plans to sell the commodity business reflects a shift to its roots -- a stable utility. The parent company of Dominion Virginia Power has grown over the past decade into a much more diversified firm.

But Dominion said Wall Street never quite understood the moves. As a result, Dominion's pieces are worth more than the company is valued as a whole. Selling the unit will turn Dominion into a lower-risk company by eliminating an energy business that fluctuates with oil and gas prices.

"Our present business mix has made it difficult for traditional shareholders to understand Dominion," said Thomas Farrell, Dominion chief executive officer, in a conference call.

Dominion fought for a legal change in Virginia in 2004 that would allow electric deregulation in the state -- then under fire -- to continue. Prices for the oil and gas that runs electric power plants would be capped on consumer bills through 2007.

Under the old regulated system, Virginia consumers pay more or less as the prices rise and fall. Dominion made no profit either way. Dominion instead made its profit through a regulated return on the cost of delivering electricity to homes.

The cap on fuel costs over the past few years could have benefited Dominion if the company paid less for oil and gas than the cap permitted.

But instead, commodity prices have skyrocketed, and Dominion has lost money selling electricity to Virginia customers.

The company lost $124 million in 2004 and $404 million in 2005.

In this year's third quarter alone, Dominion lost $165 million on Virginia fuel expenses, which was less than the $225 million that it lost in the third quarter last year, after Hurricane Katrina.

"Having functioned under a traditional fuel clause this year, it would have meant more than an expected $300 million in additional operating income in 2006," Farrell said.